The SEC’s 2018 Flex Regulatory Agenda
In December 2017, the SEC posted its latest version of its semiannual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. Prior to issuing the agenda, SEC Chair Jay Clayton had promised that the SEC’s regulatory agenda’s would be “more realistic” and he seems to have been true to his word.
The agenda is separated into two categories: (i) Existing Proposed and Final Rule Stages; and (ii) Long-term Actions. The Existing Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The semiannual list published in July 2017 only contained 33 legislative action items to be completed in a 12-month time frame, and the newest list is down to 26 items, whereas the prior fall 2016 list had 62 items.
The Unified Agenda of Regulatory and Deregulatory Actions
The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year, though the fall edition contains statements of regulatory priorities and additional information about the most significant regulatory activities planned for the coming year. Interestingly, the SEC did not include a statement on regulatory priorities, letting the list speak for itself.
The Office of Information and Regulatory Affairs, under the current administration, has stated that the Agenda “represents the beginning of fundamental regulatory reform and a reorientation toward reducing unnecessary regulatory burden on the American people.” Furthermore, the Office states, “[B]y amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.”
Executive Orders 13771 and 13777 require agencies to reduce unnecessary regulatory burden and to enforce regulatory reform initiatives. Each agency was requested to carefully consider the costs and benefits of each regulatory or deregulatory action and to prioritize to maximize the net benefits of any regulatory action. The SEC is not the only agency with a reduced Agenda. In total, agencies withdrew 1,579 actions that were initially proposed in the fall 2016 Agenda. Agencies moved 700 actions to either long-term or inactive. Also, adding transparency for those of us who like to stay up on these matters, the agencies will now post and make public their list of “inactive” rules.
SEC Flex Regulatory Agenda
On the agenda in the final rule stages are Regulation S-K disclosure updates and simplification rule changes we have all expected. The proposed rule change was issued in October 2017, a summary of which can be read HERE. Included in the final rule stage is amendments to smaller reporting company definition (see HERE), and regulation of NMS Stock Alternative Trading Systems. Amendments to the interactive data (XBRL) program have been moved up from proposed to final rule stage since July 2017.
Also included for final rules are the treatment of communications involving security-based swaps, modernization of property disclosure for mining companies, investment company reporting modernization and amendments to the investment advisor act, disclosure handling information, amendments to covered securities under Section 18 of the Securities Act and amendments to municipal securities rules.
Items of interest in the proposed rule stage include amendments to financial disclosures about entities other than the registrant (see HERE), implementation of FAST Act report recommendations (see HERE), disclosure of payments by resource extraction issuers, amendments to the financial disclosure for registered debt security offerings, auditor independence with respect to loans or debtor-creditor relationships, various rules related to the Investment Company Act and Investment Advisors Act, and amendments to the Whistleblower Program Rules.
Rule on exchange traded products, personalized investment advice standard of conduct, and disclosures of payments by resource extraction issuers were moved from long-term to the proposed rule stage.
Removed from the July 2017 Existing Proposed and Final Rule Stages list and added to long-term actions are rules related to business and financial disclosure required by Regulation S-K, reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE), transfer agents (see HERE), Form 10-K summary, and revisions to audit committee disclosures.
Items on the long-term agenda which were also on the July 2017 long-term list include registration of security-based swaps, universal proxy, corporate board diversity, investment company advertising, stress testing for large asset managers, prohibitions of conflicts of interest relating to certain securitizations, definitions of mortgage-related security and small-business-related security, standards for covered clearing agencies, and risk mitigation techniques.
Other items of interest on the long-term action list include Regulation Crowdfunding amendments, business, financial and management disclosure required by Regulation S-K, hedging disclosures, several securities-based swaps regulatory actions, conflict minerals amendments, amendments to Guide 5 on real estate offerings and Form S-11, extending testing-the-waters provisions to non-emerging growth companies, and incentive-based compensation arrangements.
Regulation A amendments are on the long-term action list. I am hopeful that these amendments may include an increase in the offering limits and opening up Regulation A to reporting issuers. See HERE.
Still not on the short-term agenda are future Dodd-Frank rules, including proposed regulatory actions related to pay for performance (see HERE), executive compensation clawback (see HERE) (which is not on the agenda at all), hedging (see HERE), universal proxies (see HERE), and clawbacks of incentive compensation at financial institutions (also not on the list at all), although some of these items remain on the “long-term actions” schedule.
The SEC rulemaking agenda may not include further rulemaking on many Dodd-Frank rules, but it also does not include specific rulemaking to repeal existing regulations, such as the pay ratio disclosure rules which were adopted in August 2015 and initially apply to companies for their first fiscal year beginning on or after January 1, 2017. See HERE for more information on this rule. The pay ratio rules do not apply to emerging-growth companies, smaller reporting companies, foreign private issuers, U.S-Canadian Multijurisdictional Disclosure System filers, and registered investment companies. All other reporting companies are subject to the new rules. In October 2016 the SEC published five new compliance and disclosure interpretations (C&DI’s) on certain aspects of the final rules. The C&DI’s covered two main topics: (i) the use of a consistently applied compensation measure in identifying a company’s median employee; and (ii) the application of the term “employee” to furloughed employees and independent contractors or “leased” workers.
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